German conglomerate plans break-up to focus on telecom, fend off takeover

LONDON (CNNfn) - Germany's Mannesmann announced plans Thursday to split in two and transform the conglomerate into one of Europe's largest pure telecom companies, valued by analysts at around $71 billion.
The Düsseldorf-based company plans to separate its telecom assets and its engineering and auto assets into two listed companies by 2001.
The news sent the stock soaring 7 percent in Frankfurt when trading resumed after a suspension for the official announcement.
The company has transformed itself over the past 10 years from a traditional engineering firm into one of the fiercest competitors to the former monopolies in the deregulated European telecom industry.
However, Mannesmann has been under pressure from investors to reform its structure. The slower pace of growth in its industrial units has weighed on the share price and also made it vulnerable to takeover.
There have been several rumors among traders recently that other telecom companies may be lining up bids for the German firm. Suitors are believed to include Europe's largest cellular operator, Vodafone AirTouch (VOD)
Analysts welcomed the news, which they said would make Mannesmann easier to value, and would make a hostile bid for the company less likely.
"The company has been under pressure [to break itself in two] for a long time," said Jim Ross, telecom analyst at ABN Amro in London. "There was always a discount built into Mannesmann's valuation because of the disparate vehicles it owned."
The split is expected to provide shareholders with a large premium to the conglomerate's current valuation of around 45 billion euros ($47 billion).
Salomon Smith Barney estimates that the telecom assets alone are worth 68.4 billion euros, with engineering and other units commanding a further 8.1 billion euros.
"This will free the company up to invest further in telecoms," said Raymond Hill, telecom analyst at Duff & Phelps Credit ratings in London.
Mannesmann already controls two of the top three cellular operators in the region -- Mobilfunk in Germany and Omnitel in Italy -- and is the second-ranked fixed-line player in both those markets and France.
The rapid expansion of its telecom activities saw the sector account for 87 percent of net profit in the first half of the year. Salomon Smith Barney estimates that telecom accounts for 90 percent of the firm's value, with cellular operations representing three-quarters of this total.

Mannesmann said a final decision on the split will come next year, after the proposal is put to its supervisory board Thursday.
Mannesmann claimed the new companies will have separate managements, and will both have a place in Germany's blue-chip Dax 30 index.
While analysts said the industrial assets have held the firm's shares back, the stock has still outperformed the benchmark Dax in Frankfurt by 59 percent this year.
The stock reached 150.71 euros in Frankfurt, up 7 percent.